Allergan loses Restasis patent protections in federal court decision

After stirring up a tribal licensing controversy, Allergan has run into a patent setback with big-selling eye medication Restasis. A federal judge invalidated exclusive protections for the drug—Allergan's second biggest—boosting prospects for generic companies looking to challenge the branded med's blockbuster sales.

In a Monday ruling, U.S. District Judge William Bryson deemed the patents in question invalid on grounds of obviousness. The case was one of two Restasis challenges facing Allergan; the other is an inter partes review at the U.S. Patent and Trademark Office.

Importantly, no Restasis generics have yet won FDA approval. If they do, and pending an appeal on the District Court case, Restasis could come up against cheaper competition. Allergan contends its patent protections are good until 2024.

Mylan, Teva and Akorn were the generic challengers remaining in the case after Allergan settled with other companies. Restasis generated $1.5 billion in sales last year.

Allergan's chief legal officer, Bob Bailey, said in a statement the company is "disappointed" with the ruling. Allergan will appeal, according to the company's release.

"We are carefully reviewing the decision and are considering all options," Bailey said in a statement. "Allergan remains committed to vigorously defending the intellectual property of our products, which allows us to continue to invest in developing and bringing forward new medicines for millions of patients."

The patent loss could also hurt Shire's Xiidra, a Restasis competitor, as that drug will also have to compete against cheaper competition if Restasis generics launch.

Allergan made headlines last month with its controversial licensing deal with the Saint Regis Mohawk Tribe. Under the deal, it agreed to transfer Restasis patents and license them back as a way to invoke sovereign immunity in an IPR challenge, a strategy that generated widespread condemnation. Monday's decision strikes down Restasis' patent protections even before Allergan could benefit from the controversial deal.

In a note after the decision, Credit Suisse analyst Vamil Divan wrote that his team finds it "challenging to defend the steps that were taken with the patent agreement, especially given that the patents have now been invalidated by the court.

"We believe it will take some time for the management team to regain the credibility it has lost through this process," he continued.

As part of the deal, Allergan agreed to pay $13.75 million and up to $15 million per year to the tribe. In the Monday ruling, U.S. District Judge William Bryson said the court has "serious concerns about the legitimacy of the tactic that Allergan and the tribe have employed."

"What Allergan seeks is the right to continue to enjoy the considerable benefits of the U.S. patent system without accepting the limits that Congress has placed on those benefits through the administrative mechanism for canceling invalid patents," Judge Bryson wrote. He said sovereign immunity shouldn't be treated as a "monetizable commodity."

All along, Allergan has said the deal is a way to defend against a "double jeopardy" of patent attacks. Company officials have said the licensing strategy wouldn't impact the patent dispute in federal court. In his decision, Judge Bryson agreed with that point.

"Regardless of whether Allergan’s tactic is successful in terminating the pending IPR proceedings, it is clear that the assignment does not operate as a bar to this Court’s continued exercise of its jurisdiction over this matter," he wrote.

Allergan shares were down about 4.5% after news of the patent invalidations hit.